ASUS internal clashes could create a new brand?

By an anonymous source, we were handed a Taiwan-based magazine called "Business Today" (like Taiwan's version of the Economist) and in this week's issue, there is a big story published regarding the internal power struggle battles between Johnny Shih, who is the chairman of Asustek and Tung Tsu Hsien who is the new boss of Pegatron, which is the breakaway OEM division of Asustek.

We managed to get the magazine article translated, since the news is not online at all (even in Taiwan). In the lengthy article, it outlines how the now chairman of Pegatron, Tung Tsu Hsien, was forced out of the ASUS board and into his new position handling OEM business against the likes of Foxconn and others.

While only touching on the issue very lightly, the article writer claims that Tung Tsu Hsien has a strong interest in brand business, especially in the growing China market. It is said that Tung Tsu Hsien takes care of his staff very well and won the hearts of many influential and talented staff - many staff from the R&D and industrial design team at ASUS decided to follow Tung Tsu Hsien to Pegatron.

What does this all mean though? Nothing at this stage, but if this rift continues to build between two powerful men in the Taiwanese tech business, Johnny Shih and Tung Tsu Hsien, and with a desire to create branded products after being basically kicked out of the ASUS, anything could happen - at this stage though, it's all open to speculation. You take what you want from it.

Pegatron Eee Hmm PC, anyone?

For our readers that can read Chinese, download the PDF scan of the article here. The translated article follows:

Asus' first ever quarterly loss during the first year of its separation of Brand and OEM businesses indicates a major stumble for Johnny Shih, Chairman of Asustek. Tung Tsu Hsien, who used to be the vice chairman of Asustek and who now holds the position of chairman of Pegatron (the breakaway OEM division of Asustek), still remembers the feeling of achievement after building up the Asus brand, however, he was forced to leave the branded business and handle the OEM business a year ago. The break between former master and apprentice is apparent. Asus' internal clashes are on the stage for everyone to see during this cold winter.

During Q4 2008 Asus incurred a massive quarterly loss of around NT$3,000,000,000. The first signs of this loss started to appear during the separation of Asus' Brand and OEM businesses in 2007. Before the announcement of the separation plan, many outsiders were paying attention to how Johnny shih and Tung Tsu Hsien, both the founders of Asus, settled the distribution of power.

The results were surprising: Johnny shih would continue to serve as chairman of Asus, and Tung Tsu Hsien was forced to take over the OEM business that became PEGATRON (ºÍÂ"ÓÀ´T). In the press conference, Johnny shih and Tung Tsu Hsien attended together happily, but in private the relationship had deteriorated. On the way to the press conference Johnny Shih tried to defuse the cold atmosphere, but his staff members saw that their interaction was poor.

Tung Tsu Hsien was forced to leave Asus, the brand established by himself, and there is a direct relationship between his leaving and Mr. Tseng, the vice chairman of Asustek.

Friendship The Controversy of Mr. Tseng Handling The Asus Notebook Business

Mr. Tseng, one-year-older then Johnny shih, comes from a distinguished family from Changhua. He comes from the same native origins as Johnny Shih and they were classmates from junior to senior high school. After entering into society, Mr. Tseng established Youngmen Information and invited Johnny Shih's younger brothers (Shih Kuei Tang & Shih Chiao Tang) to help him. He entered the hotel market successfully, and accumulated his wealth quickly. So Mr. Tseng invested a lot of funds in the early stages of Asus' foundation. The relationship between Mr. Tseng and the Shih brothers was very good. Also, Mr. Tseng married Johnny Shih's sister, so the relationship between the Shih and Tseng families continued to improve.

In 1997, Johnny shih planned to enter the notebook PC market, but his plan had been strongly opposed by Li Cong Rong, the former deputy director of sales. So a rift developed between Johnny Shih and Li Chong Rong. Therefore, Johnny Shih asked Mr. Tseng (at the time already retired and living in Canada) to handle the notebook PC sales and marketing side of the business. This move infuriated Hsieh Wei Chi and Li Cong Rong, and resulted in their leaving Asus. That also caused a bad relationship between Tung Tsu Hsien and Mr. Tseng. It was even rumoured that Tung Tsu Hsien had arranged a shareholder to strongly question Johnny Shih's appointment of a close relative in a high position during a shareholder meeting.

Mr. Tseng entered ASUS as a big shareholder. With a legalistic way-of-thinking and a stringent militaristic management style, he set many management regulations for the sales and marketing departments. In the top executives or board of directors meeting, he strictly reviewed all departments as a company owner. In his eyes, some ASUS founders such as Tung Tsu Hsien were just like little brothers. A senior staff member said: ¡°Their management style is totally different¡±.

In contrast, Tung Tsu Hsien maintains a founder's contemplative way-of-thinking. He takes care of the staff who work with him and has won the hearts of employees. That was why most RD and industrial design talents decided to follow Tung Tsu Hsien to Pegatron when ASUS split the Brand and OEM businesses. Examples include Hsu Shi Chuang, another founder of ASUS, who is the Vice Chairman of Pegatron and Cheng Din Chin who is the Chief of HR of Pegatron. Other core ASUS staff defecting to Pegatron include Liao Tzu (chief of Procurement), Tung Xu Tian (notebook PC OEM sales) and Lee Chang Yi (Assistant manager of Industrial design). Lee Chang Yi is an important member of Tung Tsu Hsien's team and is specialized in Industrial design; he even built Pegatron's new office building.

However, it is the understanding of the writer of this article, at the time that ASUS announced the separation plan Tung Tsu Hsien did not want to leave the branded business. The four founders of Asus had seats on the board of directors, but Liao Min Hsiung and Hsieh Wei Chi had left. Tung Tsu Hsien could only control his and Hsu Shi Chuang's vote. The other directors were both professional managers who were promoted through the ranks by Johnny shih. The share control by Shih and Tseng, including investment capital and stock dividends, was over 30%. Under the circumstances Tung Tsu Hsien was forced to compromise and take over the OEM business with Hsu Shi Chuang as his Vice Chairman.

Ho Ming Sen, Chen Chih Hsiung and Chen Yen Cheng took over the new director's positions; and so the founders of ASUS had all quit from board of directors. It was said by some of the old staff that ¡°Asus has become a family business¡±.

Alliance Rumours Upset Tung Tsu Hsien And Deepen The Rift

Looking at Asustek's new directors, Mr. Tseng's strategy was to infiltrate and dominate it. In the past, Asus relied on technology professionals on its board of directors, but now the technology professionals were all excluded and weren't promoted as important cadres.

Originally, people believed that Mr. Tseng would become the General Manager of Asus after the separation with Pegatron. However, according to this writers understanding, Mr. Tseng doesn't enjoy standing in front of the media and Johnny Shih wanted to pacify Tung Tsu Hsien. After taking different conditions into consideration, they assigned Jerry Sheng as General Manager. Just like Jerry Sheng who was Johnny Shih's right-hand man, Cheng Chein Chung who was in charge of the OEM business has taken up the position of GM of Pegatron.

In September 2008, there was a rumour that Asus would release Pegatron stock and were planning an alliance with Foxconn. Tung Tsu Hsien was angered by this news and jumped into the front lines. He claimed it is important to maintain internal unity and would not release the stocks. Tung Tsu Hsien said: ¡°I don't want a competitor to become a shareholder since it will only confuse the reasons for our separation.¡± He also emphasized ¡°If they want to discuss such a step then they should discuss with me¡±. However, according to our understanding, this news was incited by a senior director at ASUS who let their managers release this news to the media to test the market. Pegatron's chairman Tung Tsu Hsien didn't realize this in advance and because of this, the rift between Tung Tsu Hsien and Johnny Shih continued to deepen. Tung Tsu Hsien and other people went to visit Johnny Shih to urge him to become the CEO. To many senior ASUS staff the relationship (between Tung Tsu Hsien and Johnny Shih) had long been gone.

Johnny Shih Presented Stocks; Jerry Shen Steps Up to Become The New CEO?

Due to Tung Tsu Hsien's affinity for the branded business he established PEGA Design from ASUS's Industrial Design Team who joined Pegatron after the separation. They use a profit centre system and Tung Tsu Hsien allows them to take on designing contracts. Some of these contracts include notebook PC, desktop and broadband modem designs. And they will be stationed in Asus' old building from February 2009 onwards.

It is this writer's understanding that with this team, Tung Tsu Hsien plans to test the market. If their designs enjoy a good response then the company (with Tung Tsu Hsien's investment) could place orders from Pegatron for manufacturing. He plans to complete his dream of running a successful brand by competing in the China market with his own brand.

Cheng Chein Chung sternly refuted this rumour and claimed that this team really has been assigned to take design cases individually, and that they will never launch their own brand products and compete with their customers. ¡°I do not allow my colleagues to make such things¡± he said.

Tung Tsu Hsien recruited a lot of talent from Asus so Johnny Shih announced that he would donate 800,000 of his own Asus shares to Jerry Sheng and 13 other senior managers to consolidate the existing troops and prevent further defecting to Pegatron. Outsiders are scrutinizing this list of beneficiaries and its effects on top management.

It is obvious to see the high regard that Jerry Sheng has in Johnny Shih's mind because he got more stocks than anyone else ¨C 208,000 stocks in total. The others, including Chang Wei Ming (Chief Financial Officer), Lin Tsung Liang, Hsu Yu Chia, Chen Yen Cheng, Hu Shu Pin and current Chief Operating Officer Chen Chih Hsiung, got between 40,000 and 70,000 stocks each. However, this list also created some internal discontent; Hsieh Ming Chieh, General Manager of Asus' cash cow business, the motherboard division, only got 47,000 stocks while Hung Hung Chuang, General Manager of the non-profitable mobility system division, won Johnny Shih's trust and got 78,000 stocks. He also became the director of Asus.

Of course, in the eyes of Asus senior staff, the reason why Jerry Sheng won Johnny Shih's appreciation and became General Manager is due to his aggressiveness (dedication). Indeed, at CES this year (2009), despite Asus facing their first ever quarterly loss, Johnny Shih supported Jerry Sheng and praised him for the excellent professional management and execution ability. "It is necessary to provide full support when you choose the right man¡± Johnny Shih said without regret.

Asus has had a total of three successive general managers: Tung Tsu Hsien the founder of Asus, followed by Johnny shih, and now it has been taken over by Jerry Sheng. Jerry Sheng's family members are all abroad; he lives alone in Nei Hu. He has been working in Asus for more than fifteen years with strong ambition. It is very common to find Jerry Sheng working from 9am to 11 or 12pm. His colleagues comment that ¡°he is personally actively involved, dares to set high objectives and is very aggressive¡±.

Jerry Sheng left Acer and joined Asus with an engineering background. Besides the communication and laptop PC business, he has participated in motherboard research and development, handled product planning, assisted Johnny Shih in Asus vertical integration, and has also been in charge of major raw material control such as LCD, dynamic random access memory (DRAM), etc¡­ He has covered most of Asus' own brand products. The popular Eee PC is also his masterpiece. In addition, he has also introduced important personnel, like Cheng Chein Chung and Su Yen Hsueh (chief investment officer) to Johnny Shih.

Each Takes a Position The Power Struggle Within Asus

Although Jerry Sheng had handled a number of products and was involved in many investment projects in the past, people feel that he lost some of his speed after becoming General Manager. A senior staff member commented, ¡°Jerry Sheng didn't have time to take care of burdens such as non-profitable and small business issues. In addition, the ideas he proposed in sales meetings gave rise to concern from his staff due to his lack of sales experience.

As vice chairman, Mr. Tseng still controls sales and marketing and so Jerry Sheng has to ask Mr. Tseng's opinion for each decision. According to an internal quote from an Asus employee, in December 2008 Jerry Sheng followed Mr. Tseng on a visit to China just like a student to inspect Asus' performance in the China market. The anonymous employee insisted that "fluctuating exchange rates caused massive losses for Asus. Jerry Sheng is responsible for this failure, but he cannot be held solely accountable because he has not been granted full authority; power (sales and marketing decision making) is controlled by Mr. Tseng¡±.

¡°The current status at Asus is that each top manager has his own domain¡± a senior Asus staff member said. There are 7 seats on the Asus Board of Directors; 3 seats are held by members with a sales background. 33% of the 13 managers who got the donated stocks from Johnny Shih also come from a sales background. As the head of the sales division, the amount of Asus resources under Mr. Tseng's control is much bigger then we can imagine.

The Asus split may appear to be harmonious, but there is an underlying power struggle of huge proportions. Johnny Shih is not only facing external financial turmoil, he should also be mindful of the stormy power struggle within Asus.